DELHI RACE CLUB LTD. Vs UNION OF INDIA .
Bench: D.K. JAIN,ANIL R. DAVE
Case number: C.A. No.-006461-006461 / 2003
Diary number: 7121 / 2003
Advocates: B. VIJAYALAKSHMI MENON Vs
D. S. MAHRA
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6461 OF 2003
DELHI RACE CLUB LTD. — APPELLANT
VERSUS
UNION OF INDIA & ORS. — RESPONDENTS
JUDGMENT
D.K. JAIN, J. :
1. This is an appeal from a judgment, dated 5th February,
2003, rendered by the High Court of Delhi at New
Delhi in CWP No.2278/2002. By the
impugned judgment, the High Court has upheld the
validity of the Delhi Race Course Licensing
(Amendment) Rules, 2001.
2. On 19th October, 1984, the Central Government in
exercise of its powers under Section 2 of the Union
Territories (Laws) Act, 1950, extended the Mysore
Race Courses Licensing Act, 1952 (for short “the Act”)
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to the Union Territory of Delhi, as it existed then, with
certain amendments. The Preamble to the said Act
reads thus:
“Whereas it is expedient to make provision for the licensing regulation, control and management of horse-racing on race-course and all matters connected therewith in the Union Territory of Delhi”
Further, Section 3 of the Act reads as follows:
“3. Prohibition of horse-racing on unlicensed race- courses- No horse-race shall be held save on a race course for which a licence for horse racing granted in accordance with the provisions of this Act, is in force.”
Section 4 which lays down the procedure for issuing the
licences for horse racing reads as follows:
“4. Licences for horse-racing- (1) The owner, lessee or occupier of any race course may apply to the Government for horse-racing on such race- course or for arranging for wagering or betting in such race-course on a horse, race run or some other race-course either within the Union territory of Delhi or Outside the Union territory of Delhi.
(2) The Government may (if in its opinion public interest so requires) withhold such licence or grant it subject to such conditions and for such period as they may think fit.
(3) In particular and without prejudice to the generality of the foregoing power, such conditions may provide for-
(a) the payment of a licence fee;
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(b) the maintenance of such accounts and furnishing of such returns as are required by the United Provinces Entertainment and Betting Tax Act, 1937 as extended to the Union territory of Delhi;
(c) the amount of stakes which may be allotted for different kinds of horses;
(d) the measures to be taken for the training of persons to become Jockeys;
(e) the measures to be taken to encourage Indian bred horses and Indian Jockeys;
(f) the inclusion or association of such persons as the Government may nominate as Stewards or members in the conduct and management of horse-racing;
(g) the utilisation of the amount collected by the licensee in the conduct and management of horse-racing;
(h) such other matters connected with horse- racing and the maintenance of the race-course for which in the opinion of Government it is necessary or expedient to make provision in the licence. …..”
Sections 5, 6 and 7 respectively enumerate penalties for
taking part in horse races on unlicensed race-course and for
contravention of conditions of licence. Section 9 envisages
that cognizance of the offences under the Act can be taken
by a court not inferior to that of a Metropolitan Magistrate.
Section 11, the pivotal provision, which empowers the
Government to make rules, reads as follows:
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“11. Power to make rules-(1) The Government may, by notification in the Delhi Gazette, make rules for the purpose of carrying into effect the provisions of this Act.
(2) In particular and without prejudice to the generality of the foregoing powers; such rules may provide for all or any of the following matters, namely:-
(i) the form and manner in which applications for licences are to be made;
(ii) the fees payable for such licences;
(iii) the period for which licences are to be granted;
(iv) the renewal, modification and cancellation of licences.”
3. In furtherance of the power conferred under Section
11 of the Act, by a notification dated 1st March 1985,
the Administration of the Union Territory of Delhi,
notified the Delhi Race Course Licensing Rules, 1985
[for short “1985 Rules”]. Rules 4 and 5 of the 1985
Rules lay down the procedure for submission of
application for grant of licence for horse racing and the
validity period of such licence respectively. Rule 6
prescribes the rate of ‘Licence fee’. It reads as follows
:
“6. Licence fee-The fee for the grant or renewal of a licence for horse racing on the race course shall be a sum of rupees two thousand
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(Rs.2000/-) per day on which race is held. The fee for the grant or renewal of a licence for arranging for wagering or betting on a horse race run on any other race course, within or outside the Union Territory of Delhi, shall be rupees five hundred (Rs.500/-) per race day on which race is held.”
Rule 12 of the 1985 Rules, material for our purpose, confers
power of inspection and states as under:
“12. Inspection- The District Officer or any other officer not below the rank of Entertainment Tax Inspector shall have access to the licensed race course at all reasonable times with a view to satisfy himself that the provisions of the Act and these Rules are being complied with and that the conditions of the licence are duly observed.”
4. On 7th March 2001, in exercise of the powers conferred
under Section 11 of the Act, the Lt. Governor of the
National Capital Territory of Delhi enacted the Delhi
Race Course Licensing (Amendment) Rules, 2001 (for
short “2001 Rules”) and enhanced the aforesaid
licence fee rates to Rs.20,000/- and Rs.5,000/-
respectively.
5. On 31st January, 2002, Commissioner of Excise,
Entertainment & Luxury Tax (respondent no.3 in this
appeal) issued a demand letter to Delhi Race Club, a
body corporate, the appellant in this appeal, informing
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them that the licence fee deposited by them was short
by Rs.17,80,000/- for the year 2001-02 and by
Rs.18 Lacs for the year 2002-03. Validity of the
demand notice was questioned by the appellant by
way of a writ petition in the High Court of Delhi, on the
grounds that both the notifications, dated 19th
October, 1984 and 7th March, 2001 were illegal in as
much as : (i) delegation of powers under Section 11 of
the Act to the Lt. Governor, to fix the licence fee
without any guidelines is excessive delegation of
legislative power and is therefore, ultra vires, (ii) in the
absence of an element of quid pro quo, the licence fee
charged was not in the nature of a fee but a tax and
(iii) the ten fold increase in licence fee was highly
excessive. However, it appears that based on the
arguments advanced by the learned counsel, the High
Court framed two key questions viz. (i) Is the licence
fee under Rule 6 of the 1985 Rules a “fee” or not ? and
(ii) If it is a fee, is it excessive or not?
6. Answering both the questions against the appellant,
the High Court concluded that the licence fee in
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question is not a compensatory fee and consequently
there was no requirement of a quid pro quo; the
licence fee is in the nature of a regulatory fee and
therefore, would not require any quid pro quo in the
form of any social service and when the impost of
Rs.2,000/- and Rs.500/- in the year 1984 was not
regarded by the appellant as being excessive,
keeping in mind the high rate of inflation between
1984 and 2001, the enhanced rates of Rs.20,000/- and
Rs.5,000/- in the year 2001 could not be said to be
excessive. Hence, the appellant’s writ petition having
been dismissed, they are before us in this appeal.
7. At the outset, Mr. S. K. Bagaria, learned senior counsel
appearing for the appellant, submitted that he would
confine his submissions only to the two issues relating
to the excessive delegation of power in the matter of
fixation of licence fee and that the fee levied is in fact
a tax and therefore, ultra-vires entry 66 of List II in the
Seventh Schedule of the Constitution of India and
would not press the issue that the fee levied is
excessive.
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8. Learned counsel strenuously urged that Section 11(2)
of the Act confers unguided, uncontrolled and
unfettered power on the Administrator to fix licence
fee and thus, ipso facto bad in law, unconstitutional
and ultra-vires. Learned counsel traced the evolution
of law in this regard by referring to several decisions of
this Court. The main thrust of his submissions was
based on the decision of this Court in Corporation of
Calcutta & Anr. Vs. Liberty Cinema1, wherein it was
held that the function of fixing the rate of tax is not an
essential function and can be delegated, but such
delegation has to be under some guidance. He invited
our attention to the case of Devi Das Gopal
Krishnan & Ors. Vs. State of Punjab & Ors.2,
wherein while explaining the ratio of the decision in
Liberty Cinema (supra) and emphasising the
necessity of some guidance while delegating the
power to fix the rate of tax, it was observed that the
doctrine of constitutional and statutory needs would
not afford reasonable guidelines in the fixation of such
1 AIR (1965) SC 1107 2 1967 (3) SCR 557
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rates of tax. Reliance was also placed on The
Municipal Corporation of Delhi Vs. Birla Cotton,
Spinning and Weaving Mills, Delhi & Anr.3,
wherein, the Constitution Bench of this Court, while
observing that guidance and control must necessarily
be present while delegating a legislative function,
discussed various forms of such guidance depending
upon the facts of each delegation, and held that the
form of guidance to be given in a particular case,
depends on a consideration of the provisions of the
particular Act in question including the nature of the
body to which the function has been delegated. Lastly,
reference was made to the case of Gwalior Rayon
Silk Mfg. (Wvg.) Co. Ltd. Vs. The Assistant
Commissioner of Sales Tax & Ors.4, wherein the
above mentioned principles were reiterated. According
to the learned counsel, Section 4(3) of the Act merely
provides for the conditions, subject to which a licence
may be granted but does not contain any guidance or
policy relating to fixation of the licence fee. Similarly,
Rule 13(2) of the 2001 Rules confer power of 3 AIR (1968) SC 1232 4 (1974) 4 SCC 98
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inspection of the licensed race course and has nothing
to do with the licence fee or its rates. Thus, the
learned senior counsel asserted that in the present
case, Section 11(2) of the Act confers unguided,
unfettered and arbitrary power on the Government to
fix the licence fee without a minute shred of guidance
of any manner and hence is beyond the limits of
permissible delegation and therefore, deserves to be
struck down as unconstitutional.
9. Mr. Bagaria also submitted that in the absence of any
element of fee, as no services were being provided to
the appellant against the fee charged, licence fee
cannot be demanded, in as much as it lacked any
element of quid pro quo. Referring to the decisions of
this Court in The Delhi Cloth & General Mills Co.
Ltd. Vs. The Chief Commissioner, Delhi & Ors.5;
Kewal Krishan Puri Vs. State of Punjab6;
Secunderabad Hyderabad Hotel Owners’
Association & Ors. Vs. Hyderabad Municipal
Corporation, Hyderabad & Anr.7; A.P. Paper Mills 5 (1970) 2 SCC 172 6 (1980) 1 SCC 416 7 (1999) 2 SCC 274
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Limited Vs. Government of A.P. & Anr8; B.S.E.
Brokers’ Forum, Bombay & Ors. Vs. Securities
And Exchange Board of India & Ors.9 and Liberty
Cinema case (supra) learned counsel argued that
even though quid pro quo may not be required if the
fee is classified as regulatory fee, nevertheless there
must be a broad co-relation between the fee levied
and the expenses incurred for rendition of services. It
was contended that when a question arises whether
the levy is in the nature of a fee, the duties and
obligations imposed on the inspecting staff and the
nature of the work done by them has to be examined
for the purpose of determining the rendering of the
services, which would make the levy a fee.
10. Per contra, Mr. T.S. Doabia, learned senior counsel
appearing on behalf of respondent nos.2 and 3,
submitted that the Act does not suffer from the vice of
excessive delegation as the scheme of the Act
provides enough guidelines to fix the rate of licence
fee. To buttress his argument, he relied upon the
8 (2000) 8 SCC 167 9 (2001) 3 SCC 482
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Preamble and the text of Section 4 of the Act as also
Rule 13(2) of the 1985 Rules. Drawing support from
Liberty Cinema (supra) and Municipal Corporation
of Delhi (supra) learned counsel contended that the
nature and extent of guidance is to be ascertained
from the broad features and objects sought to be
achieved by a particular statute and not on the
touchstone of a rigid uniform rule. According to the
learned counsel, Section 4(3) of the Act, relating to the
conditions of licence, itself provides the parameters to
be kept in view while fixing the licence fee and are
thus, sufficient guidelines in the matter of fixation of
such licence fee. Rebutting the submissions of the
appellant that the levy cannot be demanded as there
was no quid pro quo involved, learned senior counsel
submitted that there is an inherent distinction
between the fee for services rendered; i.e.
compensatory fee and a license fee which is in the
nature of a regulatory fee, where no quid pro quo was
necessary. In support, reliance was placed on the
decisions of this Court in Liberty Cinema (supra);
Secunderabad Hyderabad Hotel Owners’
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Association (supra) and A.P. Paper Mills Ltd.
(supra) wherein it was held that a licence fee is
regulatory when the activities for which a licence is
granted, require to be regulated or controlled. The fee
which is charged for regulation of such activity would
be classifiable as a fee and not a tax, although no
services are rendered. He thus, submitted that the
present fee being a regulatory fee, charged for the
purpose of monitoring the activities to ensure that the
licencees comply with the terms and conditions of
licence, does not necessarily have to satisfy the test of
quid pro quo and hence is valid. Although it was never
the case of the respondents before the High Court, yet
Mr. Doabia endeavoured to submit, in the alternative,
that the impugned impost could be justified as a tax.
11. Learned counsel also urged that the fact that the levy
had been challenged after a long delay was by itself
sufficient for the High Court to dismiss the writ
petition.
12. Before addressing and evaluating the rival
submissions on the first issue, it would be useful to
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first survey the decisions heavily relied upon by the
learned counsel, wherein the question as to the limits
of permissible delegation of legislative power by a
legislature to an executive/another body has been
examined in extenso.
13. Liberty Cinema (supra), on which heavy reliance was
placed by Mr. Bagaria, related to a levy imposed on
cinema houses under the Calcutta Municipal Act, 1951.
The levy was quashed by a learned Single Judge on
the grounds that : (i) the levy being in the nature of a
licence fee and not a tax, did not pass the test of
legality on account of there being no correlation
between the amount charged from the theatre owners
and the services rendered to them or the expenses
incurred by the Municipality in regard to the issue of
licences and (ii) Section 548(2) of the said Act, which
authorised the Corporation to levy a tax, is
unconstitutional as suffering from the vice of
excessive delegation as it laid down no principle;
indicated no policy and afforded no guidance for
determining the basis or the rate on which the tax was
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to be levied and is, therefore, void. Corporation’s
appeal before the Division Bench being unsuccessful,
the matter reached this Court. By majority,
Corporation’s appeal was allowed and impost was
upheld as a tax. However, while upholding the validity
of levy, speaking for the majority, Sarkar, J. observed
that when the power to fix rates of tax is left to
another body, the legislature must provide guidance
for such fixation. Nevertheless, the validity of the
guidance cannot be tested by a rigid uniform rule and
must depend on the object of the Act which delegated
the power to fix the rate. Thus, it was held that the
power to fix the rate of tax can be delegated but some
guidance has to be specified in the Act.
14. A similar question arose in Devi Das (supra) where
the Constitution Bench, while endorsing the opinion
rendered in Liberty Cinema (supra), held that there
can be no general principle that the doctrine of
constitutional and statutory needs would always afford
reasonable guidelines in the fixation of rates of
taxation. Each statute has to be examined to find out
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whether there are guidelines therein which prevent
delegation from being excessive. The Constitution
Bench summarised the law on the subject of excessive
delegation as follows:
“The Constitution confers a power and imposes a duty on the legislature to make laws. The essential legislative function is the determination of the legislative policy and its formulation as a rule of conduct. Obviously it cannot abdicate its functions in favour of another. But in view of the multifarious activities of a welfare State, it cannot presumably work out all the details to suit the varying aspects of a complex situation. It must necessarily delegate the working out of details to the executive or any other agency. But there is a danger inherent in such a process of delegation. An overburdened legislature or one controlled by a powerful executive may unduly overstep the limits of delegation. It may not lay down any policy at all; it may declare its policy in vague and general terms; it may not set down any standard for the guidance of the executive; it may confer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation. This self effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delegation. It is for a Court to hold on a fair, generous and liberal construction of an impugned statute whether the legislature exceeded such limits. But the said liberal construction should not be carried by the Courts to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities. It is the duty of the Court to strike down without any hesitation any arbitrary power conferred on the executive by the legislature. ”
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(Emphasis supplied by us)
15. Our attention was also invited to a seven Judge Bench
decision in Municipal Corporation of Delhi (supra)
where the majority again took the view that the
legislature can delegate non essential legislative
functions, but while delegating such functions, there
must be a clear legislative policy which serves as
guidance for the authority on which the function is
delegated. As long as a legislative policy can be culled
out with sufficient clarity or a standard is laid down,
Courts should not interfere with the discretion that
undoubtedly rests with the legislature in determining
the extent of delegation necessary in a particular case.
On a review of a number of decisions on the point,
including In re. Delhi Laws Act, 191210, Liberty
Cinema (supra) and Devi Das (supra), Wanchoo C.J.
(speaking for himself and Shelat, J.) observed that
what guidance should be given and to what extent and
whether guidance has been given in a particular case
at all depends on a consideration of the provisions of
the particular Act with which the Court has to deal with 10 AIR 1951 SC 332
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including its preamble. It was also observed that the
nature of the body to which delegation is made is also
a factor to be taken into consideration in determining
whether there is sufficient guidance in the matter of
delegation. However, what form the guidance should
take is again a matter which cannot be stated in
general terms. It will depend upon the circumstances
of each statute under consideration; in some cases
guidance in broad general terms may be enough; in
other cases more detailed guidance may be
necessary. In the same decision, Shah J. (speaking
for himself and Vaidialingam J.) after analyzing the
cases on the point of delegation of legislative function
by the Legislature, culled out the following principles:
“(i) Under the Constitution the Legislature has plenary powers within its allotted field; (ii) Essential legislative function cannot be delegated by the Legislature, that is, there can be no abdication of legislative function or authority by complete effacement, or even partially in respect of a particular topic or matter entrusted by the Constitution to the Legislature; (iii) Power to make subsidiary or ancillary legislation may however be entrusted by the Legislature to another body of its choice, provided there is enunciation of policy, principles, or standards either expressly or by implication for the guidance of the delegate in that behalf. Entrustment of power without guidance amounts to excessive delegation of legislative
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authority; (iv) Mere authority to legislate on a particular topic does not confer authority to delegate its power to legislate on that topic to another body. The power conferred upon the Legislature on a topic is specifically entrusted to that body, and it is a necessary intendment of the constitutional provision which confers that power that it shall not be delegated without laying down principles, policy, standard or guidance to another body unless the Constitution expressly permits delegation; and (v) the taxing provisions are not exception to these rules.”
16. From the conspectus of the views on the question of
nature and extent of delegation of legislative
functions by the Legislature, two broad principles
emerge, viz. (i) that delegation of non essential
legislative function of fixation of rate of imposts is a
necessity to meet the multifarious demands of a
welfare state, but while delegating such a function
laying down of a clear legislative policy is pre-
requisite and (ii) while delegating the power of
fixation of rate of tax, there must be in existence,
inter-alia, some guidance, control, safeguards and
checks in the concerned Act. It is manifest that the
question of application of the second principle will
not arise unless the impost is a tax. Therefore, as
long as the legislative policy is defined in clear
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terms, which provides guidance to the delegate,
such delegation of a non essential legislative
function is permissible. Hence, besides the general
principle that while delegating a legislative function,
there should be a clear legislative policy, these
judgments, which were vociferously relied upon
before us, will have no bearing unless the levy
involved is tax.
17. Therefore, the pivotal question to be determined is
the nature of the impost in the present case. The
characteristics of a fee, as distinct from tax, were
explained by this Court, as early as in The
Commissioner, Hindu Religious Endowments,
Madras Vs. Sri Lakshmindra Thirtha Swamiar
of Sri Shirur Mutt11 (commonly referred to as the
‘Shirur Mutt’s Case’). The ratio of this decision has
been consistently followed as locus classicus in
subsequent decisions dealing with the concept of
‘fee’ and ‘tax’. A Constitution Bench of this Court in
Hingir Rampur Coal Co. Ltd. Vs. State of
11 AIR 1954 SC 282
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Orissa12 was faced with the challenge of deciding
upon the constitutional validity of the Orissa Mining
Areas Development Fund Act, 1952, levying cess on
the colliery of the petitioner therein. The Bench
explained different features of a ‘tax’, a ‘fee’ and
‘cess’ in the following passage:
“The neat and terse definition of Tax which has been given by Latham, C.J., in Matthews v. Chicory Marketing Board (1938) 60 C.L.R. 263 is often cited as a classic on this subject. “A tax", said Latham, C.J., "is a compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered". In bringing out the essential features of a tax this definition also assists in distinguishing a tax from a fee. It is true that between a tax and a fee there is no generic difference. Both are compulsory exactions of money by public authorities; but whereas a tax is imposed for public purposes and is not, and need not, be supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area, and as a condition precedent for the said services or in return for them cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from a tax and is described as a fee..”
It was further held that,
“It is true that when the Legislature levies a fee for rendering specific services to a specified area or to
12 1961 (2) SCR 537
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a specified class of persons or trade or business, in the last analysis such services may indirectly form part of services to the public in general. If the special service rendered is distinctly and primarily meant for the benefit of a specified class or area the fact that in benefitting the specified class or area the State as a whole may ultimately and indirectly be benefitted would not detract from the character of the levy as a fee. Where, however, the specific service is indistinguishable from public service, and in essence is directly a part of it, different considerations may arise. In such a case it is necessary to enquire what is the primary object of the levy and the essential purpose which it is intended to achieve. Its primary object and the essential purpose must be distinguished from its ultimate or incidental results or consequences. That is the true test in determining the character of the levy … . ”
(Emphasis supplied by us)
18. Recently in State of W.B. Vs. Kesoram Industries
Ltd. & Ors.13, a Constitution Bench of this Court, relying
upon the decision in Hingir Rampur Coal Co. Ltd
(supra), explained the distinction between the terms ‘tax’
and ‘fee’ in the following words: (SCC HN)
“The term cess is commonly employed to connote a tax with a purpose or a tax allocated to a particular thing. However, it also means an assessment or levy. Depending on the context and purpose of levy, cess may not be a tax; it may be a fee or fee as well. It is not necessary that the services rendered from out of the fee collected should be directly in proportion with the amount of fee collected. It is equally not necessary that the
13 (2004) 10 SCC 201
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services rendered by the fee collected should remain confined to the persons from whom the fee has been collected. Availability of indirect benefit and a general nexus between the persons bearing the burden of levy of fee and the services rendered out of the fee collected is enough to uphold the validity of the fee charged ….”
(Emphasis supplied by us)
19. In the light of the tests laid down in Hingir Rampur
(supra) and followed in Kesoram Industries (supra), it
is manifest that the true test to determine the character
of a levy, delineating ‘tax’ from ‘fee’ is the primary object
of the levy and the essential purpose intended to be
achieved. In the instant case, it is plain from the scheme
of the Act that its sole aim is regulation, control and
management of horse-racing. Such a regulation is
necessary in public interest to control the act of betting
and wagering as well as to promote the sport in the
Indian context. To achieve this purpose, licences are
issued subject to compliance with the conditions laid
down therein, which inter alia include maintenance of
accounts and furnishing of periodical returns; amount of
stakes which may be allotted for different kinds of
horses; the measures to be taken for the training of the
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persons to become jockeys, to encourage Indian bred
horses and Indian jockeys; the inclusion and association
of such persons as the government may nominate as
stewards or members in the conduct and management of
the horse-racing. The violation of the conditions of the
licence or the Act is penalised under the Act besides a
provision for cognizance by a court not inferior to a
Metropolitan Magistrate. To ensure compliance with
these conditions, the 1985 Rules empower the District
Officer or an Entertainment Tax Officer to conduct
inspection of the race club at reasonable times. Thus,
the nature of the impost is not merely compulsory
exaction of money to augment the revenue of the State
but its true object is to regulate, control, manage and
encourage the sport of horse racing as is distinctly
spelled out in the Act and the 1985 Rules. For the
purpose of enforcement, wide powers are conferred on
various authorities to enable them to supervise, regulate
and monitor the activities relating to the race course with
a view to secure proper enforcement of the provisions.
Therefore, by applying the principles laid down in the
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aforesaid decisions, it is clear that the said levy is a ‘fee’
and not ‘tax’.
20. The appellants have also challenged the nature of the
impost, as according to them it is a tax imposed under
the guise of a fee, since there is no quid pro quo or any
broad co-relation between the impost and the services
rendered in return, rather, there is no service in return at
all. While it is true that ‘quid pro quo’ is one of the
determining factors that sets apart ‘tax’ from a ‘fee’ but
the concept of quid pro quo requires to be understood in
its proper perspective. It can be traced back to the
decision of this Court in Sreenivasa General Traders
and Ors. Vs. State of Andhra Pradesh and Ors .14,
wherein a Bench of three learned Judges, analysed, in
great detail, the principles culled out in Kewal Krishan
Puri (supra). Opining that the observation made in the
said decision, seeking to quantify the extent of
correlation between the amount of fee collected and the
cost of rendition of service, namely: ‘At least a good and
substantial portion of the amount collected on account of
fees, may be in neighbourhood of two-thirds or three- 14 (1983) 4 SCC 353
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fourths, must be shown with reasonable certainty as
being spent for rendering services in the market to the
payer of fee’ appeared to be an obiter, the Court echoed
the following views insofar as the actual quid pro quo
between the services rendered and payer of the fee was
concerned:
"31. The traditional view that there must be actual quid pro quo for a fee has undergone a sea change in the subsequent decisions. The distinction between a tax and a fee lies primarily in the fact that a tax is levied as part of a common burden, while a fee is for payment of a specific benefit or privilege although the special advantage is secondary to the primary motive of regulation in public interest. If the element of revenue for general purpose of the State predominates, the levy becomes a tax. In regard to fees there is, and must always be, correlation between the fee collected and the service intended to be rendered. In determining whether a levy is a fee, the true test must be whether its primary and essential purpose is to render specific services to a specified area of class; it may be of no consequence that the State may ultimately and indirectly be benefitted by it. The power of any legislature to levy a fee is conditioned by the fact that it must be "by and large" a quid pro quo for the services rendered. However, correlationship between the levy and the services rendered (sic or) expected is one of general character and not of mathematical exactitude. All that is necessary is that there should be a "reasonable relationship" between the levy of the Fee and the services rendered.
32. There is no generic difference between a tax and a fee. Both are compulsory exactions of money by public authorities. Compulsion lies in
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the fact that payment is enforceable by law against a person inspite of his unwillingness or want of consent. A levy in the nature of fee does not cease to be of that character merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual service rendered by the authority to each individual who obtains the benefit of the service. It is now increasingly realized that merely because the collections for the services rendered or the grant of a privilege or licence are taken to the consolidated fund of the State and not separately appropriated towards the expenditure for rendering the service is not by itself decisive. Presumably, the attention of the Court in Shirur Mutt case (AIR 1954 SC 282: 1954 SCR 1005) was not drawn to Article 226 of the Constitution. The Constitution nowhere contemplates it to be an essential element of fee that it should be credited to a separate fund and not to the consolidated fund. It is also increasingly realised that the element of quid pro quo in the strict sense is not always a sine qua non for a fee. It is needless to stress that the element of quid pro quo is not necessarily absent in every tax.
* * * 7. It is not always possible to work out with mathematical precision the amount of fee required for the services to be rendered each year and to collect only just that amount which is sufficient for meeting the expenditure in that year . In some years, the income of a market committee by way of market fee and licence fee may exceed the expenditure and in another year when the development works are in progress for providing modern infrastructure facilities, the expenditure may be far in excess of the income. It is wrong to take only one particular year or a few years into consideration to decide whether the fee is commensurate with the services rendered. An overall picture has to be taken in dealing with the question whether there is quid pro quo i.e. there is
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correlation between the increase in the rate of fee from 50 paise to rupee one and the services rendered…..”
21. It is pertinent to note that in Liberty Cinema (supra),
the Court had identified the existence of two distinct
kinds of fee and traced its presence to the Constitution
itself. It was observed that in our Constitution, fee for
licence and fee for services rendered are contemplated
as different kinds of levy. The former is not intended to
be a fee for services rendered. This is apparent from a
bare reading of Articles 110(2) and 199(2) of the
Constitution, where both the expressions are used,
indicating thereby that they are not the same. Quoting
Shannon Vs. Lower Mainland Dairy Products
Board15, with approval, it was observed thus :-
“if licences are granted, it appears to be no objection that fees should be charged in order either to defray the costs of administering the local regulation or to increase the general funds of the Province or for both purposes…It cannot, as their Lordships think, be an objection to a licence plus a fee that it is directed both to the regulation of trade and to the provision of revenue.”
22. The same principle was reiterated in Secunderabad
Hyderabad Hotels Owners’ Association case (supra) 15 AIR 1939 PC 36
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where the existence of two types of fee and the
distinction between them has been highlighted as
follows:
“9. It is, by now, well settled that a licence fee may be either regulatory or compensatory. When a fee is charged for rendering specific services, a certain element of quid pro quo must be there between the service rendered and the fee charged so that the licence fee is commensurate with the cost of rendering the service although exact arithmetical equivalence is not expected. However, this is not the only kind of fee which can be charged. Licence fee can also be regulatory when the activities for which a licence is given require to be regulated or controlled. The fee which is charged for regulation for such activity would be validly classifiable as a fee and not a tax although no service is rendered. An element of quid pro quo for the levy of such fees is not required although such fees cannot be excessive .”
(Emphasis supplied by us)
23. Dealing with such regulatory fees, this Court in Vam
Organic Chemicals Ltd. & Anr. Vs. State of U.P. &
Ors.16; observed that in case of a regulatory fee, like the
licence fee, no quid pro quo is necessary, but such fee
should not be excessive. The same distinction between
regulatory and compensatory fees has been highlighted
in P. Kannadasan Vs. State of T.N.17; State of
16 (1997) 2 SCC 715 17 (1996) 5 SCC 670, para 36
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Tripura Vs. Sudhir Ranjan Nath18; B.S.E. Brokers’
Forum case (supra) and followed in several later
decisions.
24. In A.P. Paper Mills Ltd. (supra), a bench of three
learned Judges of this Court was called upon to examine
the validity of the revision of licence fee under the
Andhra Pradesh Factories Rules, 1950. The levy of
licence fee was challenged inter-alia on the grounds that
the fee imposed being in fact a tax, the State had no
power to levy the same; the Rules or the Factories Act,
1948, did not provide any criteria or guidelines for
fixation of licence fee and that the State had no power to
impose or enhance the licence fee for any alleged
services rendered or proposed to be rendered under
other legislations other than the concerned Act, as the
power is delegated under that particular Act only. On an
analysis of the provisions of that Act and the Rules made
thereunder, the Court came to the conclusion that the
licence fee in this case was a regulatory fee and not a fee
for any special services rendered; there was no mention
of any special service to be rendered to the payer of the 18 (1997) 3 SCC 665, 673
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licence fee in the provisions and the purpose of the
licence was to enable the authorities to supervise,
regulate and monitor the activities relating to factories
with a view to secure proper enforcement of the
provisions. It was observed that the nature of the
provisions made it clear that for proper enforcement of
the statutory provisions, persons possessing considerable
experience and expertise were required. On the
question whether the element of quid pro quo, as it is
understood in common legal parlance, was applicable to
a regulatory fee, as in that case, speaking for the bench,
D.P. Mohapatra, J., concluded thus :
“32. From the conspectus of the views taken in the decided cases noted above it is clear that the impugned licence fee is regulatory in character. Therefore, stricto sensu the element of quid pro quo does not apply in the case. The question to be considered is if there is a reasonable correlation between the levy of the licence fee and the purpose for which the provisions of the Act and the Rules have been enacted/framed. As noted earlier, the High Court has answered the question in the affirmative. We have carefully examined the provisions of the Act and the Rules and also the pleadings of the parties. We find that the High Court has given cogent and valid reasons for the findings recorded by it and the said findings do not suffer from any serious illegality. It is our considered view that the licence fee has correlation with the purpose for which the statute and the rules have been enacted.”
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25. Thus, it is clear that a licence fee imposed for regulatory
purposes is not conditioned by the fact that there must
be a quid pro quo for the services rendered, but that,
such licence fee must be reasonable and not excessive.
It would again not be possible to work out with
arithmetical equivalence the amount of fee which could
be said to be reasonable or otherwise. If there is a broad
correlation between the expenditure which the State
incurs and the fees charged, the fees could be sustained
as reasonable.
26. As noted above, in the present case, the object of the
Act, as synthesized from its provisions, is to regulate,
monitor, control and encourage the sport of horse-racing.
For this purpose, licences are issued subject to certain
conditions. The compliance with the licence conditions is
inevitable for renewal of the licences as well as
significant to avoid any penalty under the Act. To ensure
such compliance, as aforesaid, district officers/
entertainment tax officers are entrusted with the duty of
inspection. The nature of inspection enjoined by the Act
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is not of a general nature but requires expertise and
training and also constant vigil on the activities of the
race course. The expenses incurred in carrying out such
regular inspections have to be considerable. Hence, in
our opinion, the licence fee imposed in the present case
is a regulatory fee and need not necessarily entail
rendition of specific services in return but at the same
time should not be excessive. In any case, the appellant
has not challenged the amount of the levy as
unreasonable and expropriatory or excessive. The
argument on behalf of the appellant that inspection does
not constitute a service rendered in lieu of the fee
charged, based upon the observations in the Liberty
Cinema case (supra) is equally fallacious. In Delhi
Cloth & General Mills Co. Ltd. Vs. The Chief
Commissioner, Delhi19 while holding that the levy
involved in that case was a fee as opposed to tax, this
Court held as follows:
“….In each case where the question arises whether the levy is in the nature of a fee the entire scheme of the statutory provisions, the duties and obligations imposed on the inspecting staff and the nature of work done by them will have to be examined for the purpose of
19 (1969) 3 SCC 925
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determining the rendering of the services which would make the levy a fee. It is quite apparent that in the Liberty Cinema case it was found that no service of any kind was being or could be rendered and for that reason the levy was held to be a tax and not a fee….”
The observations made in the Delhi Cloth and General
Mills (supra) apply squarely to the instant case. The
scheme of the Act; its object as elucidated in its provisions
and Rules made therein; nature of conditions imposed in
the licences; inspection to ensure its compliance and non-
renewal of the licence as well as penalty in case of
contravention of the licence conditions, make the Act fall in
the category of imposts where contributions are required to
be made for the purpose of maintaining an Authority and
the staff for supervising and controlling a public activity viz.
the horse racing. Besides, the presence of a large
institution like the race course enjoins additional burden on
the civic authorities to maintain and develop the
surrounding area for the convenience of the public at large.
This Court echoed a similar view in the Secunderabad
Hyderabad Hotels Owners’ Association case (supra) as
follows:
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“(8)….Undoubtedly, the Corporation has the general duty to provide scavenging and sanitation services including removal of garbage and maintaining hygienic conditions in the city for the benefit of all persons living in the city. Nevertheless, hotels and eating houses by reason of the nature of their occupation, do impose an additional burden on the municipal corporation in discharging its duties of lifting of garbage, maintenance of hygiene and sanitation since a large number of persons use the premises either for lodging or for eating; the food is prepared in large quantity unlike individual households and the resulting garbage is also much more than what would otherwise be in the case of individual households…..”
27. Thus, the licence fee levied in the present case,
being regulatory in nature, the Government need not
render some defined or specific services in return as long
as the fee satisfies the limitation of being reasonable.
We may reiterate here that the amount of licence fee
charged from the appellant has not been challenged as
being excessive. Thus, in light of the above observations
relating to inspection and other provisions of the Act, we
hold that the licence fee charged has a broad co-relation
with the object and purpose for which the Act and the
2001 Rules have been enacted.
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28. As noted above, challenge to the constitutionality of
Section 11(2) of the Act was based on the premise that
no guidance, check, control or safeguard is specified in
the Act. This principle, as we have distinguished above,
applies only to the cases of delegation of the function of
fixation of rate of tax and not a fee. As we have held
that the levy involved in the present case is a fee and not
tax, the ratio of the above-mentioned cases, relied upon
by the learned Senior Counsel, will have no application in
determining the question before us. The scheme of the
Act clearly spells out the object, policy and the intention
with which it has been enacted and therefore, the Act
does not warrant any interference as being an instance
of excessive delegation.
29. Before we part with the judgment, it is pertinent to
note that the challenge to the validity of Section 11(2) of
the Act was raised after almost 15 years of its coming
into force. The appellant, since the commencement of
the Act, had been regularly paying the licence fee and
the present challenge was made only when quantum of
the licence fee was increased by the Government on
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account of non revision of the same since the
commencement of the Act. Evidently, the inflation during
this period was taken as the criterion for increasing the
quantum of the fee. It is a reasonable increase keeping
in view the fact that the expenditure incurred by the
Government in carrying out the regulatory activities for
attaining the object of the Act would have
proportionately increased. It is also relevant to note that
an institution of the size of the Race Course should not
cloak their objection to an increase in the rate of licence
fee and present them as a challenge to the
constitutionality of the charging section.
30. In view of the aforegoing discussion, we are in
agreement with the High Court that Section 11(2) of the
Act as well as 2001 Rules do not suffer from any legal
infirmity. This appeal, being bereft of any merit, is
dismissed accordingly, with costs, quantified at
Rs.50,000/-.
…………………………….J. (D.K. JAIN)
…………………………….J. (ANIL R. DAVE)
NEW DELHI;
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JULY 13, 2012.
ARS
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